Is A Verbal Promise By A Bank To Modify A Loan Binding?

Is a Verbal Promise by a Bank to Modify a Loan Binding?

by

Robert Marlowe

Is an oral promise worth the paper that it was written on? Usually no, but in the case of a loan modification, sometimes yes!

Last month, three California judges who heard the case of Aceves v. U.S. Bank found that the bank s oral promise to negotiate a loan modification for a customer is indeed enforceable.

Here is what happened: The plaintiff, Claudia Aceves, was seriously considering filing for Chapter 13 bankruptcy protection in order to stop the foreclosure process on her residence, but she didn t. Why? She had been promised by a bank representative (verbally) that she qualified for a loan modification. In addition she was told that the modification would make her monthly mortgage payments more affordable.

Therefore, Aceves did not file for Chapter 13 bankruptcy protection, which would have shielded her from the creditor and allowed her to stay in her home. What happened next? The bank foreclosed, stating, an oral promise to postpone either a loan payment or a foreclosure is unenforceable.

But the California court ruled otherwise. The court stated in its brief that while yes an oral promise normally would be unenforceable, however, in this case, a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.

In other words: Aceves had suffered an injustice because she was in the process of filing for Federal bankruptcy protection in order to save her home, but because the bank had offered Aceves the promise to negotiate a loan modification, Aceves stopped the foreclosure proceedings based on the bank’s promise. So to avoid an injustice from happening, a bank can’t promise to negotiate a modify a loan if their real intention is to foreclose. And because that is what happened, the bank had breached their agreement with her with the foreclosure action.

What does this mean to you? If you are thinking about selling your home this year, keep in mind that foreclosures are expected to increase again in early 2011 as servicers resume action on cases that have been under review, which Internet real estate site Zillow.com says may cause negative equity to fall as some underwater homeowners lose their homes to foreclosure and are no longer counted in the negative equity population. Dr. Stan Humphries, Zillow s chief economist believes that While the Obama tax credits did not hurt the housing market, they did delay its bottom by interrupting the housing correction that was taking place,

Home value trends in the fourth quarter remained grim, but the good news is that these declines, while increasing home value declines, as well as a reduction in the nation s foreclosure rate following the late-2010 robo-signing controversy, added to an increase in negative equity, Zillow also reported.

The internet company s market analysis shows that as of the end of the fourth quarter, 27 percent of all single-family homeowners with mortgages owed more on their loan(s) than their home was worth. This is up from approximately 23.2 percent in the third quarter of 2010.

Los Angeles Times Housing, HUD, real estate

Article Source:

ArticleRich.com